Why Alcoa still matters to investors

Opinion: The aluminum maker is going high-tech, like America itself

By

MarekFuchs

Columnist

Shutterstock.com

Investors still treat Alcoa
AA, -0.31%
, the largest aluminum producer in the U.S., as an economic barometer — but for all the wrong reasons.

For a long time, Alcoa, as a gauge for commodities and manufacturers, has set the tone for earnings season. It’s also helped that the 125-year-old company is still the first big company on the quarterly release schedule. (Alcoa releases results today, only six business days after the end of the first quarter.) As aluminum went, so went America, according to the Wall Street saying.

But the U.S. is no longer a manufacturer. It’s a service-driven economy. Plus, the country’s most famous companies produce drugs and technology hardware.

That said, Alcoa can still serve as a guidepost. The trick is realizing why and how.

Alcoa is trying to catch up in an increasingly technology-based economy.

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When it comes to earnings, to be released after the closing bell, analysts are expecting a bit of a tumble, with earnings coming in at 4 cents, according to Zacks, versus 11 cents in last year’s first quarter. Revenue is likely to be down 5% to $5.56 billion.

If that seems straightforward, it’s not. Like much in the current American economy, there is more — and less — than meets the eye.

Sarah Lawrence College

Marek Fuchs

First, though, let’s throw it in reverse and talk about what we know for certain. For one, the media’s rhetoric in the lead-up to Alcoa’s earnings release and in its aftermath will be overblown. Reporters will squeeze all the toothpaste out of the “kickoff” metaphor tube, as excitable pundits like Jim Cramer swear to us that the earnings “mean everything.”

But when Alcoa pulls the ripcord on the first quarter in what promises to be a hairy and complicated report, we will see the national economy reflected back at us in all its confounding glory.

First off, as in the case of most American businesses, forget America. That is its own form of overstatement, to be certain, but the fact is: Far-off lands like China, with its aluminum supply cuts, and Indonesia, with its messy ban on mineral exports, will exert considerable influence over Alcoa.

The business of America is, by and large, conducted in foreign lands. That means more variables than we can easily count. The next earnings report you see that is a straightforward proxy for any one nation’s business will be the first. Interwoven is the order of the day.

Another trapping of modern reports – the endless series of restructuring charges – will also be evident, as Alcoa curbed facilities across the world, from Australia to New York. In that sense, Alcoa is also a representative sample of large companies – we’ll have two more coming in the form of J.P. Morgan
JPM, -0.62%
and Wells Fargo
WFC, -0.68%
whose reports are rarely easy to decipher.

More than all that, though, Alcoa is still like America because, like America, the company is evolving and becoming more technological every day.

Alcoa is fabricating expensive and special metals, moving on with the times. That’s why its share price — though suffering plenty of indignities, including getting chucked form the Dow Jones Industrial Average — is finally decoupling from aluminum prices. The stock is up 54 percent in the past 12 months, even though aluminum prices have plummeted.

Granted, Alcoa still depends on the kindness of automakers, but even there, innovation might be outpacing expectations. Car companies are turning to aluminum instead of steel for not only the latest in lightweight sports cars, but also stalwarts like Ford
F, -0.12%
F-150 truck, the most popular vehicle in America. Alcoa has even literally reinvented the wheel — a well-regarded lightweight wheel for trucks.

Alcoa is clearly still old-tech. But the rusty manufacturer is looking more like America by the day. Which means it’s enmeshed in the international economy and pushing concepts in light-weight transportation. It’s more like modern America than may first appear.

Will Alcoa, when it reports earnings, give us a clear picture of how U.S. companies fared in the first quarter? Probably not. But it might do so more than many others, including those more technologically advanced.

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